The top seven characteristics of financial management are discussed in this article.
Getting A Glimpse Of Your Financial Needs:
The primary responsibility of a financial manager would be to forecast his company’s short & long financial needs. He will build a financial plan for the now along with the future for this objective. It will be necessary to determine the amount needed for the purchase of fixed assets and there is a need for money for working capital.
Making Capital Structure Decisions:
The capital structure describes the types and proportions of various securities used to raise financing. After determining the amount of funds required, any type of securities to be raised should be determined. Long-term borrowing may be a good way to fund fixed assets. Even though the gestation time is longer in this case, share capital may be the best option.
Working capital must also be financed with long-term finances, if not entirely, then partially. Depending solely on overdrafts and bank credits to cover working capital requirements may not be feasible. The cost of acquiring finances should be considered while deciding on various funding sources.
Choosing A Financing Source:
Following the creation of a capital structure, a suitable source of funding is chosen. Share capital, preferred stock, financial institutions, financial institutions, mutual funds, and other sources of finance can all be used to raise funds.
If short-term funds are required, banks, mutual funds, and commercial banks may be appropriate; yet, if long-term funds are required, shareholder equity and debentures could be appropriate.
Choosing An Investment Pattern:
After funds have been obtained, a decision about investment strategy must be made. The utilisation of funds is linked to the choice of an investing pattern. It will be necessary to make a judgement about which assets to acquire. The funds must first be spent for fixed assets, with a part of the funds set aside for working capital.
Even in different asset categories, a selection on the type of fixed or other assets will be necessary. Even various types of plants and machines may be offered when choosing one. Capital Budgeting, Opportunity Cost Benefit analysis, and other decision-making processes can be used to make capital expenditure choices.
Effective Cash Management:
A financial manager’s job also includes cash management. He must assess various monetary requirements at various periods and then make money arrangements.
It’s possible that you’ll need money to:
(a) Obtain raw materials
(b) Make creditor payments,
(c) Pay your bills;
(d) Cover day-to-day costs.
Cash can be obtained from a variety of sources, including:
(a) Sales in cash,
(b) Collection of debts
(c) Short-term agreements with banks and other financial institutions
Putting Financial Controls In Place:
The usage of numerous control devices is required for an effective financial management system.
The following are some of the most common financial control devices:
(a) Return on investment
(b) Budgetary Control
(c) Cost-Benefit Analysis
(d) Cost-cutting,
(e) Ratio Analysis
The best capacitive sensor for evaluating the efficacy of various financial programmes is return on investment. The larger this percentage, the greater the overall results may be.
Use Of Surpluses Properly:
Profit or surplus maximisation is also a significant aspect of financial management. Surpluses must be used wisely for expansion and development initiatives, as well as to defend the safety of shareholders. Profits should be ploughed back into the business, yet this goes against the interests of shareholders.